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The Best and Worst Performing Sectors in 2019

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The Best and Worst Performing Sectors in 2019

The Best and Worst Performing Sectors in 2019

If you think back almost 12 months, you’ll remember that the markets opened the year with extreme levels of volatility.

Stocks had just finished the worst year in a decade. Then in early January, Apple cut its earnings guidance after the company had already lost over $400 billion in market capitalization. The S&P 500 and DJIA seesawed, suggesting that the lengthy bull run could come to an end.

Yet, here we are a year later ⁠— we’re wrapping up the decade with a banner year for the S&P 500. As of the market close on December 30, 2019, stocks were up 28.5% to give the index what is expected to be its second-best performance since 1998.

Winners and Losers

Today’s infographic pulls data from Finviz.com. We’ve taken their great treemap visualization of U.S. markets and augmented it to show the sectors that beat the frothy market in 2019, as well as the ones that lagged behind.

Below, we’ll highlight instances where sectors stood out as having companies that, with few exceptions, saw ubiquitously positive or negative returns.

Top Performing Sectors

1. Semiconductors
Semiconductor stocks soared in 2019, despite sales expected to shrink 12% globally. Although this seems counterintuitive at first glance, the context helps here: in 2018, there was hefty correction in the market – and the future outlook for the industry has also been revised to be rosier.

2. Credit Services
In case you didn’t get the memo, the world is increasingly going cashless — and payments companies have been licking their lips. Mastercard, Visa, American Express, Capital One, and Discover were just some of the names that outperformed the S&P 500 in 2019.

3. Aerospace / Defense
The vast majority of companies in this market, including Lockheed Martin, Raytheon, and United Technologies, all beat the market in 2019. One notable and obvious exception to this is Boeing, a company that saw its stock get hammered after the Boeing 737 Max model was grounded in the wake of several high-profile crashes.

4. Electronic Equipment
Apple shareholders had a bit of a wild ride in 2018. The company had risen in value to $1.1 trillion, but then it subsequently lost over $400 billion in market capitalization by the end of the year. Interestingly, in 2019, the stock had a strong bounce back year: the stock increased 84.8% in value, making it the best-performing FAANG stock by far.

5. Diversified Machinery
Manufacturers such as Honeywell, General Electric, Cummins, and Danaher saw solid double-digit gains in 2019, despite a slowing U.S. industrial sector. For GE in particular, this was a bit of a comeback year after its stock was decimated in 2018.

Honorable mentions:
Construction Materials, Medical Labs & Research, Gold, Medical Appliances, Insurance Brokers

Worst Performing Sectors

1. Oil
Big oil, independent oil, and many oil services companies all had a year to forget. While this is not unusual in a highly cyclical industry, what is strange is that this happened in a year where oil prices (WTI) increased 36% for the best year since 2016.

2. Wireless Communications
Growing anticipation around 5G was not enough to buoy wireless companies in 2019.

3. Foreign Banks
It’s a tough environment for European banks right now. Not only is it late in the cycle, but banks are trying to make money in an environment with negative rates and large amounts of Brexit uncertainty. The strong U.S. dollar doesn’t help much, either.

4. Apparel
The CEO of The Gap has described U.S. tariffs as “attacks on the American consumer”, providing just another nail in the coffin to the bottom line of the retail industry. Given these additional headwinds, it’s not surprising that companies like The Gap, American Eagle, Nordstrom, Urban Outfitters, and Abercrombie & Fitch all finished the year in the red.

5. Foreign Telecoms
Continued strength of the U.S. dollar weighed on foreign telecoms, which make the majority of their revenues in other currencies.

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Markets in a Minute

Visualizing Housing Prices and Inflation

Is there a correlation between housing prices and inflation? In this graphic, we chart their relationship over three decades.

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Housing Prices and Inflation

This infographic is available as a poster.

Visualizing Housing Prices and Inflation

Do housing prices feed into inflation?

Often, rising housing prices lead to higher rents, and rent contributes to inflation. In fact, shelter makes up over 30% of the consumer price index (CPI), a common inflation measure.

Still, the relationship is not 1:1. Historical data has shown a lag between housing prices and the CPI, while other factors—such as input prices and demand—impact their relationship.

This Markets in a Minute from New York Life Investments charts housing prices and inflation over the last 30 years.

Housing Prices and Inflation in Context

In the first quarter of 2022, U.S. housing prices rose at the fastest rate in over three decades—jumping over 18% in the last year.

Not only that, housing price growth has been at a double-digit annualized pace for each of the last six quarters, going back to Q4 2020.

Rising construction input costs have been a key factor. Combined labor and material costs increased 3% in 2019, in the line with the historical average. By 2021, these costs increased 10%, driven by supply-chain disruptions. Low interest rates also boosted demand.

Below we look at the 20 highest annual changes in the price index by quarter since 1992. Data is based on the Federal Housing Finance Agency’s House Price Index.

RankYearQuarterHousing Price Index Change
(Previous 4 Quarters)
12022118.7%
22021318.6%
32021217.8%
42021417.7%
52021113.1%
62020411.2%
72005310.6%
82005210.6%
92005110.5%
102005410.2%
112004410.2%
12200439.9%
13200429.3%
14200619.2%
15200418.3%
16202038.2%
17200347.8%
18200317.7%
19200247.6%
20200337.6%

Seasonally-adjusted purchase-only index

Since CPI is a cost-of-living index, it serves to track the price of goods and services people consume. That’s why an increase in housing prices, in theory, can impact inflation.

Like the growth in housing price increases, inflation has hit multi-decade highs in 2022. Below, we rank the years with the highest inflation since 1992.

RankYearCPI Annual Percent Change
12022*8.0%
220214.7%
319914.2%
420083.8%
520003.4%
620053.4%
720063.2%
820113.2%
919923.0%
1019933.0%
1119962.9%
1220072.9%
1319952.8%
1420012.8%
1520042.7%
1619942.6%
1720182.4%
1819972.3%
1920032.3%
2019992.2%

*An estimate for 2022 is based on the change in the CPI from first quarter 2021 to first quarter 2022.
Source: Bureau of Labor Statistics (2022)

Of course, higher housing prices are not the only factor contributing to higher inflation. Take 1991. Inflation reached 4.2% driven by higher energy costs due to conflicts in the Middle East. During this time, housing prices saw relatively slower growth.

Also consider the 2008 Global Financial Crisis, where inflation hit 3.8%. Housing prices increased at double-digit speed a few years earlier, eventually hitting a peak in 2007. Meanwhile, the price of West Texas Intermediate crude oil soared from $70 a barrel in 2007 to $140 by July 2008, likely having a more immediate affect on inflation.

What’s Ahead

How will rising housing prices contribute to inflation in the near future?

First, the shelter component of the CPI looks at data from both renter-occupied units and owner-occupied units. As mentioned above, rising housing costs often lead to higher rent inflation.

Over 2022, the pace of rent inflation is anticipated to accelerate 3.4 percentage points relative to the pre-pandemic five-year average, based on analysis from the San Fransisco Fed. As a result, this is forecasted to increase CPI by 1.1 percentage points (31% of 3.4 percentage points). Given their historical relationship, accelerating rent inflation could materialize in higher CPI.

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Markets in a Minute

Identifying Trends With the Relative Strength Index

When is the S&P 500 Index considered overbought or oversold? The relative strength index may offer some answers to identifying market trends.

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This infographic is available as a poster.

Identifying Market Trends: The Relative Strength Index

What happens when the S&P 500 Index enters oversold territory? Does the market reverse, or continue on this trend?

A widely-used momentum indicator, the relative strength index (RSI) may offer some insight. The RSI is an indicator that may show when a stock or index is overbought or oversold during a specific period of time, indicating a potential buying opportunity.

This Markets in a Minute from New York Life Investments looks at the RSI of the S&P 500 Index over the last three decades to show how the market performed after different periods of overbought or oversold conditions

What is the Relative Strength Index?

The RSI measures the scale of price movements of a stock or index. In short, the RSI is used to calculate the average gains of a stock divided by the average losses over a certain time period. These are then tracked across a scale of 0 to 100. Broadly speaking, a stock is considered overbought if it reads 70 or above and it is considered oversold if it is 30 or below.

For example, when the S&P 500 Index has a RSI of 85, an investor may consider it overbought and sell their shares. Conversely, if the RSI hits 25, an investor may buy the S&P 500 thinking the market will bounce back.

The RSI is often used with other indicators to identify market trends.

The Relative Strength Index and S&P 500 Returns

Below, we show the 12-month returns of the S&P 500 Index after key ‘overbought’ or ‘oversold’ conditions in the market as indicated by the RSI:

DateRSIShiller PE Ratio*S&P 500 Index 12-Month Return
Jul 15 200220239.4%
Dec 4 200673274.5%
Oct 13 200815167.3%
Feb 7 201175231.9%
May 13 2013752316.1%
Jan 8 20188933-7.2%
Mar 16 2020222566.3%
May 3 202172370.0%

*Measured by the average inflation-adjusted earnings of the S&P over 10 years

As the above table shows, following each period of extremely oversold territory in the RSI, the S&P 500 Index had positive returns.

In fact, the S&P 500 Index had the strongest one-year returns following the COVID-19 crisis of March 2020, with over 66% 12-month returns. During the time of extreme fear, the RSI sank to deeply oversold territory before sharply rebounding.

Interestingly, following periods of extremely overbought conditions in the market there was a range of positive and negative performance. Most recently, before the peak of the last cycle in 2021, the S&P 500 Index spent roughly 9 months in ‘overbought’ territory before declining into 2022.

The Relative Strength Index in 2022

With the economy in uncertain territory, how does the RSI look today?

In early June, following a bleak consumer sentiment announcement, the RSI fell to 30, hovering on oversold territory. Since then, it has risen closer to 40 as consumer sentiment and perspectives on economic conditions have slightly improved.

However, whether or not the RSI will continue on this uptrend remains to be seen.

For the remainder of 2022, market sentiment, which may be shaped by the coming GDP and inflation figures, could push RSI into oversold territory once again. As a bright spot this may be good news—reinforcing a turning point in the market.

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